Credit Card Update January 28
DEBIT CARD SWIPE FEE CHANGES SUPPORTED BY BARNEY FRANK
U.S. Representative Barney Frank, one of the authors of the financial regulatory overhaul, said he is ready to work with the Republican majority to force changes in a Federal Reserve proposal to cap debit-card “swipe” fees. His comments are the strongest indication to date that there may be a bipartisan effort on legislative changes to the section of the Dodd-Frank law that instructs the Fed to set the limits. Frank said he was “not convinced the consumer ever sees the benefit” from the rules. Still, Frank said, regardless of what the House does, “they’ll have problems in the Senate.”
Story by Phil Mattingly and Peter Eichenbaum for Bloomberg
RETIREMENTS SWALLOWED BY DEBT
Study after study shows that more elders are living with heavy credit card debt, regularly swiping cards to pay for things like gas and groceries. No wonder growing numbers of the elderly have or want jobs. A report from the Sloan Center on Aging and Work at Boston College found that 30 percent of workers over age 55 have more credit card debt than retirement savings; 41 percent have as much. A majority of older Americans face the very real possibility of starting retirement in the red. The growing reliance on plastic has driven the average credit card debt for people over 65 to $10,235, according to a July 2009 study by Demos, a public policy research organization in New York.
Story by Sherisse Pham for The New York Times
FINANCIAL PITFALLS FOR SMART PHONE PAYMENT APPS
Like cursive handwriting, paying with cash is practically obsolete due to technological advances. A greater number of cell phone manufacturers are now adding NFC (near field communication) chips to their handsets, allowing consumers to use their phone like a credit card at various retail stores. Shifting to a system of virtual money is convenient, but it could have significant consequences for consumers and their family budgets. Psychological studies and research papers compare the effects of credit cards and cash payments. The universal conclusion shows that consumers spend less with cash because cash is the most vivid and transparent method of payment. The more transparent the payment, the higher the pain of paying and the greater the resistance to spending.
LENDERS SEE LITTLE CHOICE: LAYOFFS
The banking industry, racked by the financial crisis and facing slower revenue growth, is starting to cut costs–increasingly at the expense of jobs. Wells Fargo and American Express said Wednesday that they would take action to reduce expenses and lay off employees to become leaner. Many banks are struggling to put their bad loans behind them, adjust to a raft of costly regulations and increase revenue in challenging economic conditions.
Story by Matthias Rieker for the Wall Street Journal
SURPRISE: BANKS EASE CARD FEES
While banks are charging higher interest rates overall–an average 14.71% this month, down from 11.82% at the start of 2008, some lenders are stepping back from steep fees and penalty rates. Why the change? Bank of America waived late fees on accounts with balances of $100 or less after it learned that many arose from simple payment oversights. Wells Fargo changed its penalty-pricing practices on certain accounts as part of an effort to “provide credit to as many credit-worthy customers as possible and to help our customers succeed financially.” American Express says it nixed foreign transaction fees on certain cards to build loyalty among their cardholders, many of whom are frequent business travelers. Some industry analysts say banks also are increasingly fixated on retaining customers as other lines of business struggle. The cost of signing up new customers has jumped to roughly $150 per account, up from about $100 before the recession. Tower Group’s Mr. Moroney expects the figure to exceed $200 over the next year as lenders seek borrowers with the most pristine credit.
Story by Jessica Silver-Greenberg for the Wall Street Journal
BOTNETS, HACKED CREDIT CARDS SELLING AT BARGAIN PRICES
Have $2 to spare? Then you can buy a stolen credit card record, provided you pay up front and in cash. Or launch your own spam campaign by renting a botnet, with prices starting at $15. So says “The Cyber Crime Black Market: Uncovered,” a report released on Thursday by security software vendor Panda Security. Overall, the security firm found a thriving black market offering stolen information and attack tools. The report says credit card details can be purchased for as little as $2 per card, but this level does not provide additional information or verification of the account balance available. If the buyer wants a guarantee for the available credit line or bank balance, the price increases to $80 for smaller bank balances and upwards of $700 to access accounts with a guaranteed balance of $82,000. Spend even more–up to $1,500 per record–and you can buy stolen records that have a history of being used for e-commerce orders or paying via Web sites such as PayPal.
Story by Matthew J. Schwartz for Information Week
DON’T BANK ON IT
Disappointing earnings, shrinking revenues and optimism that somehow the economy is improving despite an ongoing housing hangover–this is what America’s biggest banks offered as they released year-end financial results last week. Banks enjoy guarantees not to fail unless the U.S. government goes down with them. They remain more or less free from regulations that might significantly curb their reckless risk-taking. And they continue to pay their executives better than rock stars or baseball players. Yet given all these advantages, a spotty financial performance is the best they can do? A healthy business lowers prices as it grows revenues. But much of the reported bank profits came from raising fees, selling divisions or gutting the house–which usually means firing people and emptying buildings, adding to the national malaise. Banks benefited over the past year from a decrease in consumers defaulting on mortgages, auto loans, revolving loans and credit cards. In this way, loan quality improves even if the economy doesn’t. And the banks can tap funds set aside for loan-loss reserves and call them profits.
Story by Al Lewis for the Wall Street Journal